Establishing Guidelines for Incentive/Disincentive Contracting at ODOT

This report describes the results of a research project which explored the use of Incentive/Disincentive (I/D) contracting at the Oregon Department of Transportation (ODOT). The research found that I/D contracting is a relatively rare practice within ODOT. When I/D contracting occurs, the special provisions and parameters (such as setting incentive amounts) are managed on a centralized basis by a small group of individuals. These individuals have used engineering judgment to develop these provisions and parameters in an environment of little historical data. Most of the knowledge of I/D contracting resides with these individuals, and there is little summarized written information that others could use to also develop similar provisions and parameters. Nationally, there is a wide mix in the use of I/D contracting amongst the various departments of transportation (DOTs). FHWA and NCHRP have published reports that compile these experiences and provide recommendations for I/D contracting. This work at the federal level is the basis for the development of an ODOT methodology for identifying project conditions that could lead to the use of I/D contracts. ODOT’s Office of Project Delivery uses Operational Notices to document and disseminate operational procedures. A draft I/D Operational Notice is included in this report as a potential tool for implementation of the findings. Significant in I/D contracting is the establishment of the amount of the incentive (and disincentive). Previously published articles recommend that the incentive be set more than the “lower boundary” of contractor’s cost of the acceleration (plus a reasonable profit), but less than the “upper boundary” of the cost of the delay to the public. This latter “upper boundary” value is usually established through the calculation of Road User Costs (RUCs), which calculation is commonly performed by DOTs, including ODOT. The research discovered, however, that there is a lack of working-level techniques to establish the “lower boundary” of the contractor’s cost of acceleration plus reasonable profit. This research proposes a method of economic analysis in determining the contractor’s costs for acceleration. A model is developed that establishes the “lower boundary” and “upper boundary” parameters based on evaluations of contractors’ costs and RUC cost techniques. These boundaries in turn provide a range within which incentive amounts would be effective. While the model is demonstrated in Microsoft Excel, the calculation methodology could be performed on a standard form, calculator or a different spreadsheet program. The standardization of the process through defined methods and/or program templates provides a formal method and basis for determining effective values for incentives – leading to consistency and auditability.


  • English

Media Info

  • Media Type: Print
  • Edition: Final Report
  • Features: Appendices; Figures; Glossary; References; Tables;
  • Pagination: 118p

Subject/Index Terms

Filing Info

  • Accession Number: 01049325
  • Record Type: Publication
  • Report/Paper Numbers: FHWA-OR-RD-07-07
  • Contract Numbers: SPR 630
  • Created Date: May 8 2007 11:22AM